Excerpt from Economictimes Article – Published on Feb 04, 2024

Under a new social security initiative that the southern state has launched, private enterprises in Karnataka are required to work with insurance providers and allocate an annual premium to fulfill gratuity obligations.The Karnataka Compulsory Gratuity Insurance Policy Rules, 2024, now encompass companies, shops, establishments, and factories with more than 10 employees. However, firms boasting 500 or more employees retain the option to maintain their gratuity trust to adhere to statutory requirements.

Labour Minister Santosh Lad, spearheading the implementation of a 1987 amendment to the central act, emphasized the scheme’s potential to benefit approximately seven million employees. The recent parliamentary insertion of Section 4(A) in the Payment of Gratuity Act, 1972, mandates compulsory insurance for gratuity payments, marking a significant stride towards ensuring employee welfare. Awareness campaigns targeting both employers and employees are underway to familiarize stakeholders with the new scheme. Employers are required to register with the Labor Department’s controlling authority and promptly report employee counts and premium payments.

Maharashtra, Telangana, and Kerala have already embraced similar initiatives, setting precedents for Karnataka’s adoption. Minister Lad underscored the scheme’s dual advantage, ensuring gratuity disbursement during company closure or financial distress while providing tax exemptions and interest earnings for employers. Gratuity eligibility requires a minimum of five years of service, with exceptions for disability or death during employment. A formula based on the final salary and years of service determines the gratuity amount.

BC Prabhakar, President of the Karnataka Employers Association, has appealed for a one-year grace period to comply with the regulation, citing the substantial premium outflow anticipated in the initial year. Alternatively, he suggests limiting applicability to companies with over 100 employees for the time being. Guruprasad Srinivasan, CEO of Quess Corp., lauded the initiative as a pivotal step towards safeguarding employee rights and enhancing labor force formalization. He anticipates broader coverage for statutory benefits, highlighting the regulation’s potential to expand compliance among businesses of varying sizes. Quess Corp., with approximately 5.50 lakh employees across India, stands as a testament to the scope and impact of the new regulations in Karnataka’s labor landscape.

To delve deeper into this topic, please read the full article in the Economictimes.